July 11, 2008 / 3:48 AM / 10 years ago

High oil prices may be good for Hollywood

NEW YORK (Hollywood Reporter) - Oil crisis? What oil crisis? As energy prices hit historic highs, studios have been forced to shoulder higher production costs. But the spike at the local Exxon doesn’t spell bad news for everyone in Hollywood. For some, it’s actually a boon.

Gas prices are displayed at a gas station in Hollywood, California March 10, 2008. REUTERS/Mario Anzuoni

And for the industry as a whole, economists say that, despite some mixed signals, there is some evidence to support the truism that higher gas prices boost box office sales by prompting consumers to opt for the local multiplex over longer trips.

A certain kind of film financier has been the most obvious beneficiary of the recent spikes. For instance, Ingo Volkammer’s Leomax Entertainment, a Los Angeles- and Berlin-based financing and production banner, has found that the jump in oil prices has opened up its financing options.

The company has created a five-year slate using money from an oil-based hedge fund — one of its current projects is a thriller called “Short Cut” from Adam Sandler’s production company — and found financing relatively easier to come by.

“If you need to shelter windfall profits, there’s really no better place than the movie business,” Volkammer says.

Basically, that’s because tax laws in some European countries require that windfall profits are taxed heavily unless the money is quickly invested in an intangible asset like film.

That has prompted oil investors to look more favorably on the film biz — any film, really — because it means that even if a movie loses, say, 20% or 30% of its money, investors still come out on top because those losses pale compared with what a government might have taken. (Financing experts like Grosvenor Park chairman Don Starr caution that more direct sources of oil money from the Middle East haven’t materialized. “I’ve heard a lot of hype, but I haven’t seen any checks being written,” he says.)

Of course, the silver lining isn’t limited to financial instruments. One of the surprise cable hits of the summer is “True Gold,” a story of modern oil-diggers, or wildcatters. In its first three weeks on truTV, formerly known as Court TV, the show has brought in twice as many male viewers as the Time Warner network had been seeking.

While truTV executives say they believe that storytelling is a factor, they believe an increasing public consciousness about oil issues — which the network played up subtly in marketing campaigns — plays into the show’s popularity.

“What we liked about the show from the beginning is that it’s about central characters up against incredible odds,” truTV GM Marc Jurist said. “But we also saw very clearly this was something on everyone’s minds, and it was becoming more so.”

Other oil-centric programming, like Fox-based studio Regency’s long-gestating big-screen remake of “Dallas,” could find current events greasing the wheels to get it closer to production. And several observers wondered what would have been the fate of Linda Bloodworth-Thomason’s oil dramedy “12 Miles of Bad Road,” sacked by HBO earlier this year, had the decision been made in these oil-obsessed times.

But the greatest potential upside to oil and gas price increases lies with ticket sales at the box office.

Economists have long debated how much of a factor gas prices are on movie attendance. While there are data showing both sides — and experts say any connection is at best correlated, not causal — several pivotal years of box office growth during the past several decades did come at times of high oil prices.

In 1981 and 1982, for example, oil prices rose roughly 30% and then 10% year-over-year; in that same period, box office saw sizable increases of 8%, then 16%.

In years when oil prices were roughly flat, like 1992, box office rose only 1%.

Other years, however, show little correlation: 2005’s notorious 6% drop in box office came when oil prices actually had risen more than 25%.

Economists say that oil prices may not so much cause a box office spike as provide a cushion; where other industries see dips in times of recession and high gas prices, the movie industry can stay closer to flat, as the number of people switching to low-cost options like moviegoing offsets the consumers who choose not to spend at all.

University of Michigan economist Paul Edelstein, who co-authored a paper last year titled “Retail Energy Prices and Consumer Expenditures,” said that even though in his study consumption of events such as live theater and spectator sports went down during a period of high gas prices, there was “a positive response” — albeit a small one — for movie tickets.

“It’s a low-cost option, so it’s conceivable that in the aggregate, the movies don’t feel as much pain,” he said.

In the end, the overall benefits to Hollywood may be small compared with the costs. But still, in a time of so much bad news, pockets of good news aren’t going unnoticed. As one industry veteran said: “No one really likes high oil prices. But some people may dislike them a little bit less.”

Reuters/Hollywood Reporter

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